A Look Into Pakistan’s E-Commerce Industry

Introduction of Pakistan’s E-commerce Industry

According to the Oxford Dictionary, e-commerce refers to commercial transactions conducted electronically on the internet. A more specific definition would be the selling of various goods and services using the internet, and the transfer of money and data to execute these transactions.

e-commerce started back in 1991 when the internet became available for commercial transactions and the trend grew slowly until 1995 when the US National Science Foundation allowed commercial enterprise to enable market penetration. This gave way to the process of development and growth. Change-makers such as eBay and Amazon came into being and took over the market, reaching a staggering $150 billion within a matter of years. Today, Amazon is valued at more than $1.5 trillion, employs over a million individuals, and pays large sums in taxes. It has shaken the US economy in the last decade – there is no doubt that e-commerce is the future of retail.

However, while the e-commerce industry has the potential to offer countless social and economic benefits to third world countries, there is a lack in its implementation and use. For Pakistan, these benefits could potentially be access to healthcare through virtual checkups and prescriptions, access to education through online classes and material, and products otherwise unavailable in remote regions.

This case study will therefore focus on the growth of the e-commerce industry in Pakistan, struggles of its implementation and use, and scope for potential future growth.

Specifically, the latter portion of the study will delve into struggles faced by brick mortar retailers in Pakistan and the driving force for digital advertisers to enable greater market penetration. This will be shown through the real-world example of Pakwm– a digital advertising company based in Lahore – and its success with a major clothing retailer -Bonanza Satrangi.

Part 1: Pakistan’s E-Commerce Industry

Growth Through The Years

The market statistics of Pakistan’s e-commerce industry serve to depict its rapid growth and potential to fast-track the economy, becoming a major chunk of the country’s GDP. Although this industry and its facilities have not been fully utilized, promise of its growth is depicted.

Early and Current Struggles

Through the years, Pakistan has faced acute problems in reaping the benefits of the global e-commerce boom.

One of the dominating factors include a low literacy rate of 60% (as of 2019). This is defined as a person age 15 and above being able to read, write and comprehend simple phrases. The lack of literacy impairs users from filling the required paperwork needed to access mobile networks, data packages, and internet browsing and e-commerce applications.

Furthermore, remote and rural areas in Pakistan lack broadband with larger numbers of users depending on slow dial-up connections. Although the Ministry of Information Technology and Telecommunication has had many policies aimed to spread 3G and 4G connectivity, most recent being the Rolling Spectrum Strategy, it has been a slow uphill climb. As can be seen on a data coverage map, 3G/4G coverage pertains to major metropolitan areas primarily in the Sindh and Punjab provinces along the Indus river, as well as populated regions of KPK. However, significant areas of interior Sindh, Tharparkar, Balochistan, and Jammu & Kashmir lack 3G/4G connectivity. The below map is of 3G and LTE coverage by Jazz (Global Telecom).

Another prominent problem which has limited Pakistan’s e-commerce industry is the lack of credible payment options. Currently, online payments are made through 3 primary methods: Visa, Mastercard and telecommunication microfinance (Jazz Cash, Easypaisa). However, e-commerce sellers report encountering many issues in using payment gateways, such as those in Habib Bank Limited. When payments do not go through, customers face double charges, delays and other issues which dissuade them from using these methods. This has resulted in most payment being made through cash on delivery. In 2017, a study showed that out of 2000 e-retailers, only 375 accepted online payments, and 90% of transactions were paid by cash on delivery.

As seen in the graph above, cash on delivery is the preferred payment method over the course of 2016 through 2020 and continues to be growing at a greater rate than online payments.

Finally, the lack of robust logistic courier services has posed a challenge to the e-commerce business in Pakistan. E-commerce businesses and start-ups have faced major issues in shipping their goods. Some common problems include: the loss of goods in transport due to mismanagement or theft, delays in payments to the business and limited areas to which shipments can be delivered. Hence, e-commerce giants like Daraz have begun to deliver their products through inhouse courier services like Daraz Express. While this may have been due to financial motives, it can not be discounted that other courier services would be unable to cater to their large amounts of deliveries.

Overcoming Problems and Future Growth

Like most developing economies, Pakistan has to overcome several systematic problems to grow their e-commerce industry. One such success story in Asia is that of South Korea. Benefitting from the global highest average internet connection speed and an online penetration of 92.7%, South Korea ranks as one of the most connected countries in the world. Furthermore, with more than half of online sales being made through mobile devices, they have become the focal points for retailers.

Pakistan can follow South Korea’s example to see effective growth in their e-commerce industry. The graphs below show their success:

Pakistan has shown a steady consistent growth in broadband internet penetration, with a download speed of greater than 256kbit/second. Broadband internet penetration refers to the number of subscribers per 100 inhabitants and comprises both fixed and wireless broadband.

As seen above, Pakistan’s broadband penetration and subscribers have nearly doubled in the last four years, with ample room for growth. With approximately 42% of the population under 20 years of age and 98% under the age of 50, the telecommunication sector needs to develop the required infrastructure to cater to the booming population. Broadband services are particularly lacking in rural areas which contain massive untapped potential due to higher birth rates. With the growth in broadband networks, the e-commerce industry is sure to benefit and grow.

In order for the industry to gain traction, there must be a larger shift away from cash on delivery and towards online payments through mobile wallets. South Korea and other fast growing e-commerce industries in Asia have tapped into these payment methods. Digital wallets such as Alipay, PayPay, Line Pay and GoPay have contributed significantly to their success and account for more than 50% of online payments. Pakistan has followed suit with telecommunication microfinance banks such as Jazz Cash and Easypaisa. With most e-commerce transactions being of relatively low value goods, the growing number of mobile wallet accounts and agents will open online marketplaces to otherwise isolated communities. As can be seen in the graphs, the infrastructure for payments made through mobile wallets is present. Yet, a shift in mindset to trust and utilize these facilities needs to take place through education of the general population.

Conclusion

Pakistan stands at the brink of evolving from an emerging economy to a transitioning economy- a large step in the right direction. While their aim should be to develop and allow their industries to prosper, solutions to current challenges are long and tedious. In terms of e-commerce, developing larger broadband infrastructure, instilling proper education, and setting up stable financial institutions for payments are long term goals which require large investments and planning. Pakistan needs to continue its course of development, led by the private sector and backed by government ministries, to ensure a boom and further growth in e-commerce.

Part 2: Pakwm’s Success

Digital Marketing in Pakistan

A digital marketing company’s primary goal is to fulfil 3 aims for the client: increase online presence, perform market research and integrate online profiles and platforms. In greater detail, they aid in website design, optimisation, content curation, SEO, social media marketing, placement of online advertisements, among others.

Over the last decade, Pakistan has shown promising growth in digital advertising revenue. The swift growth in broadband services has enabled access to web browsing, social media and e-Commerce markets in remote areas. As a result, overall digital advertising spend has risen by 15% in 2019 to $856 million, with the majority being spent on social media advertising and search advertisements. This is a persistent change with average 13% year-on year-growth.

Furthermore, according to Magna Advertising, digital advertising revenue grew by 32% in 2019 to $103 million – 12% of total advertising revenue. Yet, with the outbreak of COVID-19, the Magna Advertising Forecast predicted that Pakistan’s emerging market will see a 6.3% reduction in spending. However, between Above The Line (ATL), Below The Line (BTL), and digital it was clear that digital advertising was a winner in the situation. Many corporations and businesses drastically reduced their spending on print, radio and television advertising – instead quickly seeing the potential of digital marketing and diverting their funds. Without overextending, businesses have subtly begun developing brand images and reframing their websites to provide better customer journeys. Overall, post COVID-19, it is expected that digital advertising spend will grow rapidly and businesses across Pakistan will pay greater attention to their return on ad spend.

Bonanza Satrangi and Pakwm

Bonanza was founded in 1975 as a textile company, focusing on childwear and winter clothing for women. Since then, Pakistan’s textile industry flourished and Bonanza established itself as a major player in Eastern wear. In 2012, Bonanza ventured into a women’s exclusive line named Satrangi.

Over the years, Bonanza grew rapidly to establish 80 brick and mortar outlets across Pakistan. However, their online presence did not grow at the same pace. Nida Siddiqi, head of e-commerce at Bonanza Satrangi, recalls that their initial PHP website had an “out-dated look”, “experienced frequent crashes” and “was not able to display advertisements”. These problems are common with a majority of e-commerce websites for traditionally brick and mortar retailers in Pakistan and are often the pain reason for the lack of online retail. In order to begin reconstructing their digital presence, Nida initiated talks with Pakwm.

Nida Siddiqi and Bonanza Satrangi decided to start fresh on their online presence and revitalise their strategy with a sole focus: customer journey. On this journey, after meeting countless digital marketers and website designers Nida’s team came across Pakwm.

Pakwm is a leader in Pakistan’s e-commerce marketing space. Incorporated in 2012 by Ali Aziz, it quickly gained traction and grew exponentially. Currently, Pakwm has 200+ employees and numerous established clientele such as Hush Puppies, Metro, Beechtree, Master and Chase Up. Impressed by their services, Bonanza Satrangi signed onto Pakwm one-time process.

Over the next carefully structured 9 weeks, they transferred Bonanza Satrangi onto a Shopify platform, set up their customised storefront, added support for both desktop and mobile apps, developed a site map, onboarded products, curated content, trained Bonanza Satrangi’s team to use the storefront and finally launched the website. As Nida recalled, “Pakwm team worked diligently and the outcome was leaps and bounds ahead of our previous website”. Furthermore, the switch from previously using Magento to using Shopify was a major upgrade. While Magento frequently experienced crashes, long product onloading times, and required a lot more maintenance – Shopify worked smoothly, crash-free and offered far more features. “As all change, this shift was difficult at the time but looking back – it was much needed” Nida recollected.

To date Pakwm is providing ongoing e-commerce management support to Bonanza Satrangi. This includes:

Product Onboarding.
Changes to UI/UX based on customer feedback.
Operational and marketing analytics and predictive analytics for inventory planning and sales.
A brand specific account manager.
Performance marketing including paid marketing, retention marketing and SEO.

Since the change in Bonanza Satrangi’s digital marketing approach with Pakwm, they have seen considerable growth in sales which persisted through the COVID-19 pandemic. With a well grounded digital presence and digital marketing strategy, Nida is focussed on the next steps: refining operations with courriers and setting up a more secure and reliable payment gateway.

Conclusion

With COVID-19 disrupting our lives and transforming the way we conduct business, Pakistan’s e-commerce industries need to adapt. Firms are realising the importance of effective online marketing and retail with the recent e-Commerce boom. Customers are more than ever before willing to purchase goods online than buy from brick and mortar retailers, and firms must be equipped with the correct tools to provide and ease their customer journey. Digital marketing companies like Pakwm are prime factors bringing traditional retailers like Bonanza Sat to the future of retailing. Seeing the success of companies such as Amazon it seems unrealistic to hope for major success without adopting online retailing.

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Introduction of Pakistan’s E-commerce Industry